The capital markets regulator Securities Exchange Board of India (Sebi) has introduced modifications in the norms related to call auction session IPO listing and relisting of the scrips to ensure better fair price discovery and curb manipulation during the listing/relisting of the counters.
The market watchdog has imposed additional measures and surveillance to curb manipulation in the process involved to compute the opening price for a stock on the day of its listing following an initial public offering (IPO).
As per new norms, the session will be for 60 minutes, from 9:00 am to 10:00 am, out of which 45 minutes will be allowed for order entry, order modification and order cancellation and 10 minutes for order matching and trade confirmation. The session will close randomly during the last 10 minutes of order entry between 9.35 am to 9.45 am.
The listing price of the new/relisted stock will not necessarily be the price at 9:45 am, but it can be any price between 9:35 am to 9:45 am. However, the new norms shall be applicable after three months, said the market regulator in its circular.
Mahesh M Ojha, AVP - Research at Hensex Securities said that there was already a fair price discovery method but it was fixed at 9.45 am. But in the new norms any mean price shall be chosen randomly between 9.35 am to 9.45 am for a better discovery. "Random price discovery is being introduced to prevent speculative price discovery," he said.
The pre-open call auction session, a one-hour process followed on the day of listing, during which market participants place bids at specific prices, which are later matched to arrive at an opening price. The regulator found that orders were placed at higher price in large volumes and a significant portion of such orders were cancelled just before the closure of the call auction session.
This may led to creation of a false demand and supply and possibly manipulating the price of the scrips to the detriment of common investors, SEBI said in its circular. Prior to implementation of the call auction methodology, share prices used to witness huge volatility on the day of listing.
Sebi's new IPO listing norms represent a significant step towards curbing market manipulation and enhancing transparency. By introducing random closure of the pre-open call auction session and monitoring large order cancellations, Sebi aims to prevent tactics that distort supply and demand, said Trivesh D, COO at Tradejini, a discount broking firm.
"Real-time bid data on exchanges’ websites further empowers investors with critical information. These measures collectively stabilize IPO listings, reduce volatility, and promote fairer price discovery. Investors benefit from more reliable entry points, and companies achieve valuations that accurately reflect their worth, paving the way for a healthier IPO market in India," he said.
By canceling such orders, SEBI is helping to ensure that the demand seen in the market is genuine, with confirmed buyers participating, said Kulbhushan Parashar, Founder & Managing Director at Corporate Capital Venture. "Penalties for those who attempt to manipulate the market will serve as a strong deterrent. This step is positive for maintaining the markets' integrity."
Further, stock exchanges have been directed to send alerts if the cancelled quantity or value for a particular client exceeds 5 per cent of the total cancellations in the session, or if over 50 per cent of the orders for that single client are cancelled. Stock exchanges may also seek explanations for such cancellations or modifications in prices.